The New York Times Opinionator blog recently posted a fantastic take-down of the “hidden prosperity of the poor” concept: the idea that the relative low cost of consumer goods means that poverty isn’t as hard on people as it used to be. Post author Thomas B. Edsall details both the liberal argument that the hardships of poverty are a barrier to achievement of the American Dream, and the conservative argument that consumer products keep decreasing in price relative to income, rendering income inequality a non-issue. Edsall looks at the research and concludes that consumption inequality is in fact increasing right alongside income inequality, and that compared to other developed nations, the United States has both more poverty, and fewer resources devoted to poverty reduction.
Back in August 2011, NLIHC analyzed an exchange between the Heritage Foundation and the Center for American Progress regarding a report from Heritage making the case that the presence of appliances in the homes of poor households means poor people are not experiencing the kind of material deprivation anti-poverty advocates claim. The Center for American Progress countered with an assessment of the kind of income the sale of such appliances would provide a poor family, noting that based on prices quoted from eBay and Craigslist, poor families could sell their refrigerators and use the cash to buy eight days of food (where that food could be stored in the absence of a refrigerator is, of course, anyone’s guess). NLIHC noted in its analysis that “Ownership of consumer durables, the asset class most likely to be owned by poor households, is not equivalent to financial or other forms of wealth that have the potential to appreciate and can be exchanged more readily for cash to help a family in times of need.”
Asset poverty is a significant problem for both poor and middle income households, according to a report from the Corporation for Enterprise Development. The report finds that 44% of American families do not have enough saved to weather a three-month personal financial crisis, and that one in three families do not have a savings account. Liquid asset poverty disproportionately affects those living below the poverty line and people of color, but the report notes that a quarter of middle class families and over 58% of white households are liquid asset poor.
Can you find the “prosperity of the poor” in all this? We can’t. And while it’s tempting to suggest those low and middle income households experiencing liquid asset poverty should put less money into consumer durables and more money into savings, it’s not the $150 you’d save from cutting out one latte a week or the $200 you’d save by forgoing the purchase of a used XBox from Craigslist that will spare your family from liquid asset poverty. It’s being able to cut your greatest costs, like the cost of housing.
A low income family paying half or more of its income for rent simply will not have enough money left over for the basics, like food or medical care, much less to put away for an emergency. The solutions the Corporation for Enterprise Development suggests, like increasing the minimum wage and lifting asset requirements for assistance programs, are important ones. Another way to help poor families is to decrease the housing costs that are eating up what income they have. Our proposal to fund the National Housing Trust Fund through modification of the mortgage interest deduction would put money into the hands of more middle and lower income homeowners while giving communities across the country the resources they need to build and preserve affordable housing for their poorest residents. This is rental housing that would cost no more than 30% of the family’s income, leaving them more money to spare on their needs, today and in the future.
It is possible for America’s poor to truly prosper. What is required for this to occur is an investment in the policies, programs and resources that will help close the inequality gap. Only then will the American Dream be in reach of us all.